Run and hide. That’s what people do when they’re scared and a new report says that’s the path Canadians are following as they face a volatile stock market that is driving their fear.

CIBC World Markets economists Benjamin Tal and Royce Mendes said in a market analysis out Tuesday that about $750 billion in cash is sitting on the sidelines — $75 billion more than should be there, after adjusting for impacts of inflation and demographic issues such as population growth and composition.

“With an ocean of fear dominating financial markets, Canadians have been swimming back to shore. Building on already elevated cash positions, investors are accumulating cash at a rate not seen in more than four years,” say the economists, adding that will mean billions of dollars in lost returns when the market rebounds.

In an interview, Tal said the amount of cash in Canadians’ portfolios is growing by 11 per cent annually, the fastest pace since 2012. And it’s growing across all age groups.

It’s easy to say buy low, sell high but we do the exact reverse

“It’s pure liquidity. I’m not even including guaranteed investment certificates, because that’s money that is locked in,” said Tal. “While holding cash can guard against short-term spikes in volatility, it’s certainly a long-term drag on portfolio returns.”

Cash positions have been rising since the 2008 recessions, so the recent increase comes on top of what Canadians were already sitting on in their portfolios. The result is the largest hoarding of cash in Canadian history.

Tal said he doesn’t have crystal ball for when markets will recover, but says that by the time they do, “it will be way too late” for Canadians on the sidelines to take advantage, because most recoveries happen in the early stages.

So, if you are holding on to that cash out of fear rather than need, you should consider jumping back in and benefiting from what is essentially a 20 per cent discount on stock prices.

But what if you need cash right now, because you’ve just hit your retirement years, or you need to liquidate some of your registered education savings plans because your child will soon be starting a university or college program?

The short answer is that you should have planned ahead: You want to have a certain amount of cash in your portfolio to meet more immediate needs so you’re not cashing out your investments at the bottom of the market.

Clay Gillespie, a Vancouver-based certified financial planner with Rogers Group, said that after 2008 he tried to have clients ready for the next dip.

“The problem with going in and out of the market is you have to time when to go in and when to go back out,” he said. “What happens if you have to sell? That can happen to anybody who has to sell.”

For example, the RESP is like a condensed version of retirement planning for education, and it also requires people to plan ahead for when they need the money so they won’t be withdrawing their cash at the worst possible time.

“Typically I tell people when (their kids) start hitting Grade 8 to start switching it over to fixed income,” Gillespie said. “You know with an RESP you are going to be using it in two to three years. You have to invest your money based on when you want it back.”

He starts the switch from investments to cast in Grade 8 because it gives him time to hold off selling as he waits for the market to turn around. Wait until Grade 12 to start and you’ve got no buffer.

The same is for retirement: you should have cash ready five years before you actually need it.

How long can you hold off selling? If you’re buying a house today, first-time buyers can take up to $25,000 out of their registered retirement savings plans and pay it back over 15 years, but it would mean selling at a low point.

“You would be selling your investments at the bottom of the market and buying a house at the top of the market,” said Vince Gaetano, principal broker at Monster Mortgage, who really doesn’t believe in using RRSP savings for buying a home. But, if you choose to go that route, he says the money should be close to liquid cash a year in advance because of scenarios like what we are seeing today.

Felix Narhi, Vancouver-based portfolio manager of the Pender US All Cap Equity Fund and the Pender Strategic Growth and Income Fund, said people are driven by psychology. “It’s easy to say buy low, sell high but we do the exact reverse,” he said. “We can’t recover from mistakes in the past but we can learn from them.”

In the interim, Gillespie suggests just cashing in what you need for the next two years and hoping the market comes back.

If you believe the economists at CIBC World Markets — and history — that’s exactly what will happen.